Student Loan Repayment 2023: First Year Out of College? 7 Money Mistakes You Absolutely Shouldn’t Make
Graduating from college is an exciting milestone. Your school years are behind you, and now it’s time to look forward to your future.
This is a time of freedom and fun for many young people in their early twenties. It’s when you’ve left the world of research papers and tests, but you don’t have the responsibilities of family, children, or managing a large team just yet.
This is also a great time to start your life on the right financial foot. By avoiding some key mistakes, you can set yourself up for a lifetime of financial freedom. Here are a couple of missteps to avoid in your first year after college graduation.
Not Keeping a Budget
When you’re young and in your 20s, it’s easy to overspend. There are restaurants to go to, trips to take and clothes to buy. Those things can be amazing so long as you can afford it.
In order to determine whether or not you can afford your desired lifestyle, it’s important to keep a budget. The first step when creating a detailed budget is to make a list of your income and a list of your expenses.
For your income, write down how much you make from your job or any other sources like side hustles. For your expenses, write down how much you pay for rent, your utilities, a car payment, and any other bills you have. When writing down your expenses, also think of future costs, like student loan payments.
Track your spending throughout the month so you don’t spend more than you earn. It’s also a good idea to create categories for savings and investing.
Splurging on a New Car
The average price of a new car today is just over $48,000 and on average, new car payments are $729 per month. While it’s tempting to purchase a brand-new car when you get your first job, new cars depreciate up to 20% within the first year. Depending on your interest rate if you finance your car and how much you put down, it’s possible you could end up owing more on your car than it’s worth.
Not Making a Plan for Your Student Loans
The world of student loan repayments is complicated. There are many different types of student loan repayment plans, and it’s wise to know which one would be most beneficial for you.
For example, if you plan to qualify for public service loan forgiveness (PSLF), make sure you have your paperwork in order. Confirm your job qualifies for this program and keep track of your loan payments each month.
The same is true for any other type of student loan payment play. Learn how much you owe, select a repayment plan, and decide how much of your income you’ll allocate each month towards payoff.
If you just graduated from college and have federal student loans, many of them offer a six-month grace period after college, which helps you get acclimated to working life. However, many students defer their payments after that as well, which does not prevent interest from accruing. Instead, take the time to understand exactly how much you owe and decide the best way to pay them off quickly.
Not Having an Emergency Fund
An integral part of being financially secure is having money to fall back on in case of an emergency.
An emergency fund can help you pay for unexpected expenses, like a hospital visit, a car repair, or a last-minute plane trip to see a sick loved one. Without an emergency fund, it’s easy to get into debt, especially if you put the expense on a high-interest credit card.
Not Investing for Your Future
When you’re in your early twenties, retirement might seem like a faraway dream. But, due to the power of compound interest, investing in your twenties is extremely beneficial for your retirement goals.
If you have a job with benefits after graduating from college, it’s important to invest in your retirement plan, especially if your company issues a company match. Essentially, the earlier you start investing, the better off you’ll be. A company match is essentially free money for your future, so take advantage of it if you can.
Racking Up High-Interest Debt
Adulthood comes with many freedoms, but it also comes with responsibilities. You learn how to pay your bills on time, how credit scores work, and you can likely access some form of credit if you need to.
Still, many new graduates fall into the trap of accruing credit card debt. According to WalletHub, the average interest rate on existing credit cards is 21.19%, which means if you don’t pay off your balance in full each month, your balance will increase at a rapid rate.
Ultimately, having high-interest debt can prevent you from reaching many of your other financial goals, so it’s best to avoid it.
Not Learning How To Negotiate
When you get your first job, it can be easy to be so swept up in the process that you fail to negotiate your starting salary. However, your starting salary will be the base for all future progress in your career. That’s why it’s so important to learn how to negotiate early on in your career.
In order to negotiate effectively, research salary averages for your job title in your geographic area. Remember, you can negotiate more than just your salary too. For example, you can ask for more vacation time or other benefits.
Negotiating might seem uncomfortable at first, but it’s a valuable skill that will serve you well throughout your career.
Final Thoughts
Graduating from college is an important life milestone. It can be an exciting time, but also an uncertain one too.
If you get a job right out of college, being aware of the money mistakes above can help you to avoid financial hardship not only now but later in life too.
If you form good financial habits now, in your 20s, you can set yourself up for significant financial success in the future.
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